Small business eyes $2.5 billion windfall from card reform

Shaun Drummond and Beau Donelly

Small business will be able to claw back some of the $2.5 billion in fees they send to the banks to process card payments under proposals put forward in the federal government's landmark review of the financial system.

Fairfax Media has confirmed the government is keen to back a recommendation for a "hard cap" on these fees from the Murray inquiry's final report.

Hard cap: The government is keen on a recommendation to set a limit on card payment process fees. Photo: Jessica Shapiro

These fees, known as interchange fees, form a big part of the tariffs passed on to businesses by their banks for accepting credit and debit cards from customers.

The review recommends the Reserve Bank of Australia be charged with introducing either a percentage or a flat fee to credit and debit card payments. Banks will have to charge their merchant customers whichever is the lower fee.

The Murray inquiry's final report, out on Sunday, will also urge the RBA to apply three distinct rules for low-cost debit cards, medium-cost Visa and MasterCard credit cards, and high-cost payment providers such as American Express and PayPal.

At present, it regulates only Visa, MasterCard and eftpos.

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Fees paid by merchants' banks to card-issuing banks, and passed on to banks' business customers, range from zero to 2.2 per cent per transaction for Visa and MasterCard and a payment of up to 25¢ to merchants for a customer cash withdrawal, and a maximum 5¢ charge for payments using eftpos.

American Express charges an average of 1.75 per cent and PayPal charges about 2 per cent, reducing with volumes.

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The reduction in the fees would be accompanied by a ban on businesses surcharging customers when they use debit cards from Visa, MasterCard and eftpos. The RBA could set an upper limit on surcharging for medium-cost credit cards. Businesses could pass on fees for high-cost payment types but they would have to keep them to the "reasonable cost" of accepting them.

The moves should be popular with consumers and business. The inquiry received 5000 submissions calling for a ban on surcharging, out of a total of 6500 submissions. The submissions on surcharging were all driven by Gold Coast businessman Klaus Bartosch posting a petition on Change.org calling for Jetstar to drop its "deceitful ripoff $8.50 credit-card surcharge for booking online".

The ACCC is pursuing airline companies for heavy gouging on credit card fees. Visa and MasterCard have also accused taxi payment companies and utilities of overcharging for card transactions.

A spokeswoman for Visa said it supports a ban on surcharging but would not comment on the interchange fee proposal.

"Visa supports government action on excessive merchant surcharging," said Stephen Karpin, group country manager for Visa in Australia and New Zealand.

"Excessive surcharging is an unfair cost on consumers. Consumers should not be penalised at the checkout when they choose to pay with an efficient, fast and secure credit or debit card. Visa has been actively working with merchants and financial institutions to reduce excessive surcharging since the RBA introduced guidelines in March 2013, limiting surcharging to the reasonable cost of acceptance. However, it is clear the current system has not worked."

The big banks declined to comment before the Murray inquiry report release on Sunday.

As well as the cap, Murray has recommended changes that will push down the fees below the cap, especially on smaller transactions.

Consumer group Choice welcomed reports that a government review of the financial sector would recommend a limit on excessive surcharges on credit and debit card transactions, but said it would keep an eye on big business to ensure the losses were not recouped in other fees.

"Nothing would surprise us when it comes to business and fees," spokesman Tom Godfrey said. "We saw earlier this year when it came to credit card late fees with the banks that they'll try everything to maintain dodgy fees. If this ban is put in place we'll be watching and waiting to see whether or not [they] try to pass on additional costs."

But retailers set their own fees to cover the cost of processing the payments and have come under fire for price gouging, with some companies charging as much as 5 per cent per transaction. Airlines Jetstar, Tiger, Virgin and Qantas charge $7-$8.50 a passenger for domestic flight bookings paid for with a credit card.

MasterCard's Brent Thomas said any move to lower surcharges was a win for consumers but said they should be abolished altogether.

"We're still waiting to see the details but anything that lowers surcharges is a positive first step," he said. "We would continue to say the best outcome for Australian consumers would be scrapping, banning surcharges altogether, as is the case in almost all other markets in the world."

Mr Godfrey said the proposed changes were long overdue and that any limits imposed by the government needed to be backed by a regulatory body to ensure compliance.

"This is not actually about the costs of the product, this is profiteering plain and simple. Let's hope that a ban will see business brought into line and consumers can actually start seeing some benefit," he said.